NEW YORK — Now that Saks Inc. is done selling its southern department store business, it’s shopping around its chain of northern-based stores.

R. Brad Martin, chairman and chief executive officer of Saks Inc., gave a good pitch for the sale of that business. “It’s a business that’s quite profitable,” Martin told WWD. “The stores are either number one or number two in their marketplaces. In the Chicago, Milwaukee, Des Moines and Omaha markets, we’re the number-one [retail department store] business, and we are a terrific emerging business in Michigan. We are the number-two business in metro Chicago,” next to Marshall Field’s.

Buyers of the northern group, Martin explained, would have further opportunities to strengthen market share as Federated Department Stores sells off stores in certain markets due to its acquisition of May Department Stores Co.

On Friday, Saks Inc. said it was selling its Proffitt’s and McRae’s businesses to Belk Inc. for $622 million in cash, plus the assumption of $1 million in capitalized lease obligations and certain other liabilities. The announcement Friday confirmed a second report in WWD two weeks ago that said a deal for the two nameplates was imminent.

In a statement, Saks said it was exploring “strategic alternatives” for its northern department store division as one entity and Club Libby Lu, which could include a sale of one or both. The retailer said it will continue to operate its 38-unit Parisian chain as well as its Saks Fifth Avenue division. The northern department store division includes Carson Pirie Scott, Bergner’s, Younker’s and Herberger’s.

The Saks deal with Belk for the 22 Proffitt’s stores and the 25-unit McRae’s, which is subject to the expiration of waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act, is expected to close on July 5. The 47 Proffitt’s/McRae’s stores being sold to Belk, located throughout 11 southeastern states, generated $700 million in revenue in 2004.

In a statement Friday, Martin said, “The decisions to sell Proffitt’s and McRae’s, to explore strategic alternatives for our northern department store group and Club Libby Lu and to continue to operate Parisian were made very deliberately. We believe this strategy is in the long-term best interests of our shareholders, our customers and our associates.”

This story first appeared in the May 2, 2005 issue of WWD. Subscribe Today.

Once the deal is done, Belk will operate 275 stores in 14 states, with an estimated annual sales volume of $3.15 billion. Belk said it will offer all current Proffitt’s and McRae’s associates employment and will operate the Proffitt’s/McRae’s headquarters in Alcoa, Tenn., for a transition period through September. Following the transition, corporate associates at Alcoa will either be offered positions with Belk or be given “appropriate” severance packages.

“This transaction solidifies and strengthens our position in the South,” said Tim Belk, chairman and ceo of Belk, in a statement.

“Proffitt’s and McRae’s are an excellent geographic fit. They give us a leading position in Tennessee and Mississippi and a stronger presence in nine other states. In addition, the combination will create synergies that will improve operating efficiency,” he added.

The chairman of Belk said it would take about 18 months to complete the integration of the stores, which will include the opening of a new distribution center in the fall of 2006.

As for the remaining nameplates in SDSG, Martin said in a statement: “We think there is a very bright future for this business and that the opportunity exists to gain trade-area share in the midst of disruption associated with various merger integration activities currently taking place at our competitors.”

SDSG, excluding Parisian and the nameplates sold to Belk, generated revenues of $2.2 billion in 2004 on a store base of 143 units throughout 12 Midwestern and Great Plains states.

Martin acknowledged the difficulty in disconnecting the northern group from the southern group. “Sure it’s disruptive, but we will be providing central services for Belk,” including logistics, technology and other back-office functions, he said.

And, despite the disruptions seen, Belk is viewed as a good fit with Proffitt’s and McRae’s.

“Belk’s has always been known for good customer relationships and loyalty and that goes along with Proffitt’s,” said Laura Pomerantz, principal at PBS Realty Advisors. “Price-point-wise, vendor-wise and customer-wise, they’re very compatible.”

Analyst Robert Buchanan at A.G. Edwards & Sons Inc. wrote in a research note Friday that possible buyers for the rest of SDSG “would include Dillard’s.”

Buchanan reiterated his firm’s “sell” rating of shares of Saks’ stock. His model assumes that the balance of SDSG gets sold for $2.1 billion, representing 75 percent of sales for the core department store group excluding Parisian. The analyst also assumed that the resulting sales for Saks post the sale of the core department store group would be $3.6 billion, or $2.8 billion for SFA and $800 million for Parisian, and that the remainder of Saks would earn 5 percent on an operating basis.

Saks said it operates 43 Club Libby Lu stores and 23 in-store shops located within SDSG stores. Revenues in 2004 for the Club Libby Lu business, which targets preteen girls, were $30 million.

The 38-unit Parisian, which Saks is keeping, generated $700 million in revenues in 2004. In addition the McRae’s stores in Tuscaloosa and Gadsden, both in Alabama, were excluded from the sale and will be converted to the Parisian nameplate.

The SFA operation — 57 SFA stores, 52 Saks Off 5th units and — generated $2.7 billion in revenues in 2004. The ceo noted that last year represented solid progress and SFA and that the company has a “clear direction for a very bright future in this business.”

The sale of the department stores to Belk unravels a strategy Saks’ Martin formulated in the Nineties, which involved buying regional chains and, in 1998, purchasing Saks Fifth Avenue to form Saks Inc.

Combining Saks Fifth with the department stores was widely criticized, though Martin contended there would be significant back-office synergies, cost savings and buying clout to gain.

Recently, much of the Saks Inc. capital allocation has been to Saks Fifth, rather than the department stores, and it is believed the sale to Belk will fuel further capital improvements and expansions at SFA. Martin wouldn’t specify on the use of capital, other than saying funds from asset sales go into the corporate coffers.

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